Trans-Balkan Breakthrough

Economic News

22 Jul 2010
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The news this week that an agreement had finally been signed on a trans-Balkan oil pipeline was greeted warmly by Sofia, with the deal being potentially good news for both the companies involved and the starting point port of Burgas.



The deal was inked in Sofia on April 12 by Bulgarian Minister for Regional Development Valentin Tserovsky, Russian Energy and Industry Minister Viktor Khristenko, and Greek Minister for Development Dimitris Sioufas. Bulgarian Prime Minister Simeon Saxe-Coburg was also present at the ceremony.



Under the plan, tankers containing Russian, Azeri and perhaps eventually Kazak oil will deliver their cargoes to Burgas, from where a 285-km pipeline will convey it to the Greek port of Alexandroupolis in the north Aegean. The route bypasses the congested Bosphorus waterway, which runs through the heart of Istanbul. Turkish authorities had long claimed that this was not a satisfactory or safe way for oil to be transported, citing a number of collisions and groundings in the waterway over the years and the proximity of a major urban population.



In addition, the Bosphorus route is also regularly beset by delays caused by bad weather and a volume of traffic that often sees long queues developing.



According to a study published by the Greek daily Kathimerini, and carried out by the three governments, more than 100m tonnes of oil were shipped through the Bosphorus in 2004, with delays adding around $7 to every tonne shipped through the strait. This left oil companies with an estimated $700m extra bill. The study showed an average eight-day delay for oil shipments through the Bosphorus.



Given these figures, the construction of a pipeline that bypassed the strait began to make more economic sense. The cost of the project is estimated at between $600m and $800m and will have a capacity of 700,000 barrels per day (bpd). The planned annual capacity will be 15m tonnes once the first stage of construction is finished, rising to 24m tonnes after completion of the second stage and 35m tonnes upon final completion. There is also an option to expand this to an eventual 50m tonnes.



Yet, as the ministers were at pains to point out, there is still a long way to go before the oil starts to flow.



"We are still at the beginning, not the end," said Khristenko, who also called for "more dynamism and co-operation than in the past."



This was a straightforward reference to the disputes that have beset the project up to now. Arguments over the share each of the three participating countries should take of the financing had stalled talks on the pipeline for some time, while Russia also pursued alternative bypass routes.



Last year, Moscow sounded out Ankara on a possible route across Turkish Thrace, which would have had the advantage of making the deal a two country enterprise, but had the considerable disadvantages of requiring two new port facilities to be built - while also incurring considerable wrath from environmentalists. Another proposed Turkish route was to go from Samsun to Ceyhan, taking advantage of existing internal Turkish networks.



These projects may not be dead yet, however, but the signing of a memorandum this week in Sofia does appear to herald a major step forward in the Bosphorus bypass dilemma.



The share of the burden regarding financing has also been largely sorted out by the fact that the pipeline project will be entirely financed by the private sector.



The participant companies at present include BP PLC's Russian joint venture, TNK-BP - which is heading the project - Greece's Hellenic Petroleum and the Latsis and Kopelouzos Groups, the US Cambridge Energy Research Associates, Russia's Lukoil and Rosneft, and Bulgaria's Technoexportstroy.



Bulgaria itself stands to gain much from the project - and also has more such schemes in mind.



At the signing ceremony, Tserovsky brought forward another pipeline idea - that of linking Burgas to Vlore in Albania, a scheme that would deliver oil directly to the Adriatic and thereby cut out the lengthy voyage round Greece for tankers docking at Alexandroupolis.



"There is enough oil for both pipelines," he said.



As to when the Burgas-Alexandroupolis route will be up and running, Tserovsky characterised estimates of a 2007 completion date as optimistic, preferring instead to say he was "convinced that the project can be fulfilled in the next three or four years."



If so, there appear to be several lessons to be learnt here for projects involving a number of governments, each of which is out, naturally enough, to defend its own strategic interests, which also, naturally enough, may be conflicting. In these circumstances, private-sector financing, it seems, can oil the wheels highly effectively.

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